In Venezuela, the Newest State Business Is a Dairy

BARQUISIMETO, Venezuela -- Mauricio Herrera describes himself as a devoted soldier in President Hugo Chávez's self-styled revolution. So when oil workers opposed to Chávez went on strike in 2002, Herrera was among loyalists at the state oil company who revived production.

Now, with the government bedeviled by food shortages, Herrera has been called upon to carry out the president's orders in an entirely different sector: milk.

A chemical engineer with 32 years of experience in oil, Herrera is working at Los Andes Dairy, which was recently acquired by the state oil company. He is responsible for running a venerable firm with two pasteurization plants, 52 distributorships and 3,000 employees. His instructions are to boost production and ease Venezuela's dairy shortages.

In a country that has seen the state increasingly inject itself into the economy, nationalizing companies, applying currency controls and setting prices, the acquisition of Los Andes in this western city embodies Chávez's state-does-it-all philosophy.

The approach has largely discouraged private investment in Venezuela, while making some foods scarce. But since Chávez first won office in 1998, he has wrested control of oil from multinational energy firms and nationalized the phone company, electric utilities and, more recently, an Argentine-controlled steel producer.

Shifting away from the production of yogurt and oatmeal -- products Herrera dismissively says the former owners churned out to generate profits -- Los Andes has ramped up milk production eightfold in a bid to achieve what the government calls "nutritional sovereignty."

"It's our responsibility," said Herrera, 57, who has a slight goatee and has learned to speak about milk with the same enthusiasm he once reserved for oil. "This is a question of conscience. This is a company that has to have a socialist focus."

Chávez announced the purchase of Los Andes in March as a solution to the food shortages that have chipped away at his government's popularity. Herrera and officials at the oil company said they did not know what the state paid for Los Andes, though milk industry officials said it was $180 million.

The president said he decided to purchase the dairy company after Rafael Ramírez, the president of Petroleos de Venezuela, the state oil company, told him about it.

"He said, 'I have good news, they're selling a company,' " Chávez said recently on his nationally televised show, "Hello President." "I reviewed the characteristics of the company, and I said, 'Let's not waste a day. Buy it.' "

Although economists blame the food shortages here in part on rising demand, the president has said unbridled capitalism, unscrupulous speculators and hoarding by political opponents are to blame. He has also characterized the struggle to increase food production as part of an epic battle between his revolution and imperialist forces.

"We're going to have good nutrition for a people who deserve it," he said. "We're going to defeat the imperialist plan."

In the expansive plant here, where milk and juices are pasteurized, refrigerated, packed and shipped, workers in hard hats and white coats said the new ownership has not translated into a major transformation. Save for Herrera, the new president, the production managers remain the same as before. Workers had kind words for the old owners, but several said they agreed with the new philosophy of focusing on milk production.

"We're seeing now that there's more milk," said Carlos Escalona, one of the workers. "You can see the milk in the stores."

It is still too early to determine whether the mounting production at Los Andes will have a major effect on nationwide milk supplies. The company's goal -- about 53,000 gallons a day -- amounts to just 5 percent of national production. Academics and economists who have studied Venezuela's agricultural sector doubt there will be any large-scale impact.

"Why don't they preoccupy themselves in increasing the production of oil instead of producing milk?" scoffed Carlos Machado, an expert on agriculture, referring to Petroleos de Venezuela's role at Los Andes. "What if milk producers were now starting to produce oil?"

A recent poll by Datanalisis, a Caracas polling firm, showed that Venezuelans have been concerned about the president's approach. More than 70 percent of respondents disapproved of how the government has handled food supplies, up from 42 percent in October.

Academics and food producers, meanwhile, say farmers and cattlemen are reluctant to invest in a country where price controls cut into profits and where land takeovers are a prominent feature of agricultural policy.

"It's a consequence of the government's policy of hyper-intervention," said Machado, who studies agriculture for the Institute of Superior Administrative Studies in Caracas and wrote the recently published book "Food Consumption in Venezuela."

"This has gone badly for governments that have done this in the past," he said, referring to the countries in the former Eastern Bloc, as well as North Korea and Cuba.

In Venezuela, price controls have been imposed on dozens of products, and economists and food producers say those controls have reduced production and generated a dramatic rise in imports. The country's cattle herd, for instance, contracted from 13.5 million head in 1999 to 12.6 million now, as population spiked from 23 million to 28 million. Imports now account for about 70 percent of all the meat consumed in Venezuela.

The system Venezuela has created means occasional shortages of basics, while those products whose prices are not state-mandated, like fruits and vegetables, have shot up in cost. At high-end grocers, shortages are evident in the lack of certain cuts of meat. In poor neighborhoods, it means long lines at state-subsidized markets.

The lack of milk has been perhaps what has most agitated consumers.

"There isn't enough milk, and you cannot invent it," said Roger Figueroa, president of the country's largest association of dairy producers. "We produce 40 to 45 percent of what we consume, and the rest has to be imported."

José Mendez Duarte, a cattleman in the western state of Tachira, said milk and meat producers have watched with dread as squatters, spurred by government land policies, have seized farms. "Who wants to produce when you're threatened," he said. "You either maintain production at the level it has been, or it goes down. There is no motivation to produce."

Mendez said the government-set price on milk, although it was recently raised from about $2.80 a gallon to about $3.30, offers little incentive when production can cost even more.

"It is bad business to produce," he said. "The state wants to run everything. They want to have the farms. They want to run the companies."

Still, not all the news is dour, said José Campos, president of the National Confederation of Growers and Cattlemen of Venezuela. He said the shortages are generated by a sharp increase in demand among the poor, who have benefited under a government that spends freely on subsidies and social programs.

He also said interest rates are far lower now than they were in past governments. That is helping create the kind of foundation Venezuela needs for production to increase.

"The positive message in this whole situation is that we have the legal framework for Venezuelan cattle production to take off," said Campos, who produces milk on his farm in the state of Maturin.

In recent weeks, shortages have eased as the government lifted price controls on some products. Regulators raised the price paid to producers on others. It also created an agency, closely allied with the state oil company, to distribute food.

Figueroa, of the dairy association, said that Chávez has shown a willingness to meet with producers to find ways to increase production. "If we don't resolve this domestic production problem, in a few years we are going to have a much more critical situation," he said.

Milk production has, to be sure, increased at Los Andes, from about 5,300 gallons a day in March to upwards of 45,000 gallons a day in May as the company retooled, said Herrera, the president.

"We have a good plan," he said. "I am not talking to you about dreams and utopias. I am sure we are going to break all the production records this company had in its history."